Crocker Fined $2.2 Million for Secrecy Act Violations

The Treasury Department Tuesday fined Crocker Bank $2.25 million for violating the Bank Secrecy Act by failing to report thousands of large cash transactions totaling $3.89 billion in the last five years.

Nearly all the money traded hands in Crocker’s San Francisco headquarters after being shipped there by six banks based in Hong Kong, which has become a “substantial center for money-laundering activities,” Assistant Treasury Secretary John W. Walker said.

The fine, the largest civil penalty ever imposed by the department on a financial institution for violations of the secrecy act, resulted from a continuing federal investigation of possible money-laundering by the nation’s banks. Fines have been imposed on five other banks, and officials said more are expected.

Under the law, designed to monitor attempts by drug traffickers and others to process the large sums of cash with which they deal, banks must report to the Internal Revenue Service all transactions of $10,000 or more. At Crocker, Treasury officials said, some of the transactions with the Hong Kong banks involved millions of dollars at a time.

The Treasury Department investigation, which was started after officials found evidence of the violations during a routine audit last October, turned up no evidence that Crocker had deliberately engaged in money laundering, Walker said.

But he said that Crocker’s “systemic and pervasive” reporting failures deprived Treasury officials of potentially important law enforcement leads that could have been useful in drug, tax and money-laundering investigations.

“What we are seeing, of course, is non-reporting by a major financial institution that is widespread and massive,” Walker said. “There is a high degree of probability that dirty money--if you will, narcotics money--is being laundered through these institutions.”

Crocker, the nation’s 12th-largest bank, has agreed to pay the fine and has cooperated with the investigation, belatedly providing records of 7,877 transactions it had not previously reported. Those reports will provide “a fruitful area” for criminal investigations, Walker said.

Law on Books Since 1980

Harold P. Reichwald, Crocker’s general counsel, said that the transactions had not been reported because of “mistakes in interpreting and implementing” regulations established by the Bank Secrecy Act, which went into effect in 1980.

“It doesn’t excuse the mistake,” Reichwald said. “We’re simply saying it explains it.”

Reichwald said that Crocker had agreed to the settlement because it “wipes the slate clean concerning any known or unknown failures to file currency transaction reports . . . .”

“We are confident our decision is right, even though outside legal counsel strongly advised us that we would win a case against the government in court,” he said.

Violations occurred at 29 Crocker branches in California, the Treasury Department said, but $3.88 billion of the total involved foreign transactions conducted in San Francisco.

Money Sent by Courier

Most of those transactions were made with the six Hong Kong banks, which shipped by air freight or sent by courier “millions of dollars” at a time to Crocker’s central cash vaults in San Francisco, where it was credited to their accounts.

Because of favorable tax policies and a reputation for secrecy, Hong Kong has been a favorite site for individuals seeking to hide large quantities of illicitly gained money from U.S. authorities.

“We have to suspect that currency dollars that are transferred back to the United States from Hong Kong could well have originated with illegal drug transactions,” Walker said.

Of the $122 million in domestic transactions, Walker said, the largest chunk--about $31 million--changed hands at two Crocker branches near the Mexican border, one in San Ysidro and one in Calexico, which has since been closed. Walker said that no one had been found criminally liable at those branches but observed that those seeking to get rid of large sums of money near the border are often involved in drug trafficking.

“I have no doubt . . . that the individuals at the Tijuana and Calexico branches knew or had reason to know that these were suspicious activities,” Walker said.

U.S. Reduced Fine

By law, Crocker could have been fined $7.88 million for the violations. The department decided to reduce the fine to $2.25 million because Crocker officers had cooperated with the investigation and expressed their commitment to full compliance in the future, and because the “the bank only recently returned to profitability after its well-known financial difficulties.”

Crocker lost $324.4 million in 1984 and $10.2 million in 1983, largely as a result of bad agricultural, real estate and foreign loans.

Crocker National Corp., parent of Crocker National Bank, was acquired in May by London-based Midland Bank PLC, one of England’s biggest banks and a major international lender. The merger began in 1980 when Midland bought 51% of Crocker, gradually increasing its stake to 57%. Last fall, in the wake of growing losses at its U.S. subsidiary, Midland sought 100% control, which was approved by shareholders of both concerns this spring.

The case of the First National Bank of Boston, which pleaded guilty last February to criminal charges of failing to report $1.22 billion in large cash transactions and was fined $500,000, touched off congressional inquiries and apparently persuaded some banks to note instances in which they had failed to file reports.

3 N.Y. Banks Fined

Three big New York banks were among the four fined by the Treasury Department last month after they admitted in March that they had failed to report transactions.

And three California institutions--Bank of America, First Interstate Bank and Wells Fargo--are among 60 others nationwide that have voluntarily admitted “inadvertent” violations of the reporting law. All three institutions said that the unreported amounts were far smaller than at Crocker and denied any conscious involvement in money laundering for drug traffickers or organized crime.

Bank of America is expected to be assessed a sizable penalty, according to a federal law enforcement source who asked not to be named. It is not known when the fine will be levied, the source said, but the amount is said to be more than $1 million but less than the $2.25 million Crocker agreed to pay.

B of A said that it willingly supplied information about its violations to the government and is holding discussions with Treasury officials on the question of fines or other penalties.

In all, federal officials have been examining the books of 140 banks nationwide this spring and summer in a search for unreported cash transactions.

“They’re going to find that everybody’s got some,” one executive of a major California bank predicted.

Staff Writer John M. Broder in Los Angeles contributed to this story.